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Archive for the ‘Big Government’ Category

I wrote last week about the ever-expanding burden of government spending in California.

And that was after writing two columns last year (here and here) about the state’s economic decline.

But sometimes a specific story is more compelling than broad economic trends. So here’s a tweet that caught my eye. It tells us a lot about the nature of government contracting, inefficiency, and cost overruns.

But it also tells us a lot about California (sort of like this story from 2021).

By the way, I don’t know if the above numbers are correct. But even if they are only half right, they are a damning indictment of California budgeting.

As you might expect, bad budgeting and extravagant waste also mean high taxes.

And high taxes mean economic decline, and that’s the focus of today’s column.

In a recent column for the Washington Post, Henry Olsen offers a depressing assessment of the California’s future.

California’s…falling population coupled with its $22.5 billion budget deficit suggest it could experience a swift and wrenching decline. …California offers natural beauty…, but people decide how much they want to pay for these things just like other goods. The state’s…high taxes are a significant deterrent to living there, driving many people to flee. …That outward flow of people is turning into a flood. The state’s population dropped by more than 500,000 people between July 2020 and July 2022. Outmigration to other states fueled the decline: Almost 900,000 more people have moved to other states from California in the past three years than have moved in. …This exodus poses massive risks for the state’s finances because of its reliance on revenue from the rich. As of 2018, almost 35 percent of California’s personal income tax revenue came from the sliver of taxpayers earning $1 million or more. Nearly two-thirds come from those earning more than $200,000. That means a small change in these people’s residence can cost the state billions. …It could take a New York-style collapse to force significant change. Given the direction California is heading, that unhappy prospect is no longer unthinkable.

Writing for the City Journal, Steven Malanga has a similarly grim view.

California’s net domestic outmigration ranks highest among the states…In fact, the biggest leavers by far are lower- and middle-income people. And middle-class losses have grown in the last five years to about 200,000 adult residents. Meantime, some 300,000 adult Californians from lower-income categories have also left in that time… Taxes don’t exist in a vacuum; they are one component of a governing philosophy. High taxes represent an approach that favors bigger, more pervasive government, which takes many other forms besides taxes: a tendency to greater regulation and differing spending priorities than those of lower-taxed states, for example. …Fueled by its taxes on high earners and on businesses, California has an enormous budget. Its general fund alone tops $200 billion. You might expect, for that money, top-notch services from government, but the opposite is true. …Advocates for higher taxes often argue that progressive tax systems like California’s are fairer because wealthier residents pay at higher rates. …And yet high-taxing states like California, New York, and New Jersey also have among the highest rates of outmigration. These states are so “fair” that a significant number of their lower- and middle-income residents can’t wait to leave.

The most important insight of Malanga’s column is that California politicians say that they are trying to punish the rich, but lower-income and middle-class people are suffering a lot of collateral damage.

Which should come as no surprise.

P.S. If you want to enjoy some California-themed humor, click here and here.

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In mid-2021, I wrote about long-run policy lessons from the coronavirus pandemic.

That column focused on insights from my five-part series (see here, here, here, here, and here) about the failure of big government.

More specifically, the CDC and FDA did a terrible job domestically and the WHO did a terrible job internationally.

By contrast, millions of lives were saved by the private sector.

But we also learned fiscal policy lessons in addition to public health lessons.

The most depressing fiscal lesson is that politicians love having any excuse to spend more money.

Though that’s hardly a surprise.

Now that we are in early-2023, are there more lessons to be learned? The answer is yes.

A new study by Professors Alex Tabarrok and Robert Tucker Omberg, published by the Oxford Review of Economic Policy, finds no relationship between supposed pandemic preparedness and health outcomes.

How effective were investments in pandemic preparation? We use a comprehensive and detailed measure of pandemic preparedness, the Global Health Security (GHS) Index produced by the Johns Hopkins Center for Health Security (JHU), to measure which investments in pandemic preparedness reduced infections, deaths, excess deaths, or otherwise ameliorated or shortened the pandemic. We also look at whether values or attitudinal factors such as individualism, willingness to sacrifice, or trust in government—which might be considered a form of cultural pandemic preparedness—influenced the course of the pandemic. Our primary finding is that almost no form of pandemic preparedness helped to ameliorate or shorten the pandemic. Compared to other countries, the United States did not perform poorly because of cultural values such as individualism, collectivism, selfishness, or lack of trust. General state capacity, as opposed to specific pandemic investments, is one of the few factors which appears to improve pandemic performance.

The study is not free to access, but Professor Tabarrok cited it at Marginal Revolution and shared this chart comparing death rates in the (allegedly) best prepared nation and the least prepared nation.

The Omberg-Tabarrok study shows us that pre-pandemic government policies were ineffective.

What about government policies once the pandemic hit?

In a column for the Washington Times, Richard Rahn points out that heavy-handed government intervention also was ineffective.

Sweden had the lowest aggregate excess mortality percentages (2.79)… Sweden was unique in that it had the fewest “lockdown” requirements, while countries like the U.S., with substantial lockdowns, had much higher excess deaths. We also know that within the U.S., states with very onerous lockdown requirements, like New York, have total age-adjusted higher death rates than states like Florida with few lockdown requirements. The big mistake the CDC people (Dr. Anthony Fauci, Dr. Francis Collins, etc.) made was to single-mindedly focus on potential deaths directly from COVID-19 while largely ignoring the potential deaths indirectly induced by the lockdowns. …Other studies support the evidence of health harm to people who have not yet died but are likely to have their lives shortened by the indirect effects of the lockdowns. …If the above-described mistakes had not been made, it is no overstatement to say that hundreds of thousands of lives and trillions of dollars could have been saved.

The information about Sweden is worth noting.

But the biggest lesson from Richard’s column is that politicians and bureaucrats failed to consider direct and indirect effects (a problem that is sadly common with government), so their cost-benefit analysis (to the extent they did any) was very flawed.

And we also need to learn that it is depressingly easy for governments to curtail liberty.

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I have a seven-part series (here, here, here, here, here, here and here) comparing Texas and California, mostly to demonstrate that the not-so-Golden State has hurt itself with excessive taxation and a bloated government.

Today, we’re going to augment our comparisons by looking at a very practical example of how California’s approach is much worse.

The National Association of State Budget Officers publishes an interesting document (at least if you’re a budget wonk) entitled State Expenditure Report.

And if you to to Table 2 of that report, you’ll find the most important measure of state fiscal policy, which shows how fast the burden of government spending increased over the past two years.

Lo and behold (but to no one’s surprise), California politicians increased the spending burden much faster than their Texas counterparts.

As you can see, both states were irresponsible the first year, thanks in large part to the all the pandemic-related handouts approved by Trump and Biden.

But California was twice as bad. Politicians in Sacramento used federal handouts to finance a grotesque spending binge (whereas the spending binge in Texas deserves a more mild adjective, such as massive).

Both states were better the second year, with California’s spending burden climbing by 2.2 percent in 2022 and Texas actually delivering a spending cut.

Remember, though, that the spending burden exploded between 2020 and 2021, so the 2022 numbers only look reasonable compared to the bloated trendline.

Now let’s consider whether California’s grotesque spending binge had negative consequences.

The answer is yes, according to a Wall Street Journal editorial.

Gov. Gavin Newsom last year touted a $100 billion budget surplus as evidence of California’s progressive superiority. He was less triumphant…when announcing a $22.5 billion deficit in the coming year, a contrast to Texas’s record $32.7 billion surplus. …California’s problem, as usual, is that Democrats baked too much spending into their budget baseline. They expanded Medicaid to undocumented immigrants over the age of 50, enacted universal pre-school and school lunches, extended paid family leave by two weeks, and boosted climate spending by $10 billion. …Much of Texas’s surplus this year owes to surging sales-tax revenue from inflation and population growth—i.e., Californians moving to Texas and spending their tax savings. Mr. Newsom claimed Tuesday that California has a more “fair” tax system than the Lone Star State and that Texans pay more in taxes. This is disinformation. According to the Census Bureau, California’s per capita state tax collections ($6,325) were second highest in the country in 2021 after Vermont. Texas’s ($2,214) were second lowest after Alaska. …California’s budget problems will grow as more of its rich and middle class move to lower-tax states like Texas.

Per-capita state tax collections are the most striking numbers in the editorial.  The average Californian is paying $6,325 for state government, nearly three times as much as the $2,214 that is paid by the average Texan.

Does anyone think that Californians are getting nearly three times as much value as their counterparts in the Lone Star State?

Based on how people are voting with their feet, the answer is obvious. But if you prefer more technical measures of state government value, California loses that contest as well.

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After five columns mocking statism in 2021 (here, here, here, here, and here), I only produced one in 2022.

So let’s get an early start for 2023.

This cartoon is a helpful reminder that government has done many wonderful things throughout history.

Next we see a reminder that just because you ignore the government, that doesn’t mean the government will ignore you.

For our third item, here’s some satire about people who are ignorant of world history.

Next is a reminder that nitwit bureaucrats (I assume at the Department of Agriculture) want us to believe processed flour is better for us than vegetables.

Per tradition, I’ve saved the best for last.

Just like our third item, this is a helpful reminder that we should not trust government.

Unless, of course, you like that kind of shower.

And, as a libertarian, I support your right to like weird things…so long as one of those weird things isn’t imposing wasteful and venal government on the rest of us.

P.S. I have an entire page of cartoons and images mocking government, so feel free to peruse.

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It’s not easy to identify America’s worst-governed city. You can make a case for jurisdictions such as San FranciscoDetroitNew York City, Minneapolis, or Seattle.

For what it’s worth, there is statistical research from last decade showing places like New York and Los Angeles are among the worst of the worst, but I wonder if Chicago actually deserves top billing

There are many reasons to criticize the Windy City. Crime is rampant, taxes are excessive, and schools are terrible.

And, to make matters worse, Chicago is in America’s worst-governed state (at least based on my poll, which is not scientific but is probably accurate).

I already wrote once about bad public policy in Chicago. Today’s column is going to show that things are getting even worse.

I’ve written about how taxpayers are fleeing poorly governed states. Well, they’re also fleeing poorly governed cities. And the AP reports that Chicago is a popular place for companies…to leave.

The Chicago area saw an exodus of corporate headquarters in 2022, including investment firm Citadel, which moved to Miami along with its billionaire founder, Ken Griffin; Caterpillar, which relocated from north suburban Deerfield to Irving, Texas; and aerospace giant Boeing, which moved to Arlington, Virginia, after more than 20 years in the West Loop. The most recent high-profile departure was announced in November, when Lake Forest-based auto parts manufacturer Tenneco said it was shifting its headquarters to Michigan. …vacancy rates in the central business district rose to 19.6%, while the Chicago metro ticked up to 21.8%… Meanwhile, Citadel principals and employees generated billions of dollars in tax revenue for the city and state over the past decade, according to the firm, money that has also headed south.

And why are businesses escaping?

As Adam Schuster explained last October in National Review, the city’s economic management is getting worse.

Can anything be done to save the financial future of one of America’s largest and best cities? …Let’s go through the numbers. The business community is right that a property-tax increase is unnecessary considering the $3.5 billion in pandemic-related federal aid. ..The property-tax hike could be prevented by using just 2.5 percent of Chicago’s $1.9 billion in American Rescue Plan funding. But instead of using the aid to prevent tax hikes that would impede Chicago’s economic recovery, the city has proposed to use those billions to create new programs. The mayor’s proposed budget increases spending by roughly $1.2 billion… Unfortunately, that spending is propped up by one-time federal aid that expires by 2024 — meaning many programs will have to be…financed with significant tax hikes within just two years. And about those pensions: Pension costs will consume more than $2.3 billion of the city’s budget, or 21.4 percent of its own source revenue, excluding state and federal grants. That’s more than a $967 million increase in pension spending since Lightfoot became mayor and $461 million more than last year alone.

In other words, the city is trying to raise taxes today while also making decisions (especially regarding unfunded pensions) that will almost surely mean additional tax increases in the future.

No wonder people and business are fleeing the state and the city.

P.S. To make matters worse, Chicago still has major problems with corruption.

P.P.S. My long-run fear is that politicians in DC will provide bailouts for profligate cities and states.

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I’ve shared some notable tweets this year.

Today, we’re going to expand on this list with the “most laughable” tweet of 2022. But this tweet from the Republican National Committee is a case of accidental humor rather than deliberate humor.

As you might expect, the RNC did not bother trying to prove its statement.

That’s because the Republican party generally does a terrible job. Donald Trump expanded government. George W. Bush expanded government. And George H.W. Bush expanded government.

You have to go all the way back to Ronald Reagan to find a Republican who actually was on the side of taxpayers (and before him, you have to go all the way back to Coolidge).

Indeed, Republicans usually wind up expanding government faster than Democrats.

And that’s not because of the defense budget. Even when looking at just domestic spending, Republicans (other than Reagan) have a worse track record.

I have to wonder whether the folks at the RNC were doing hallucinogenic drugs when they sent out that tweet? Or was it a naive intern who heard a few speeches and was tricked into thinking the GOP actually cared about shrinking government.

The latter possibility is a good excuse to share this cartoon.

But let’s also look at some serious analysis.

Here are some excerpts from a column in the Wall Street Journal by Kimberley Strassel. She was motivated by a pork-filled handout to the tech industry this past summer, but then proceeded to list many other sins.

The GOP that is assisting in this quarter-trillion-dollar spendathon is the same GOP that last year provided the votes for a $1 trillion infrastructure boondoggle. The same GOP that in 2020 signed on to not one, not two, three or four, but five Covid “relief” bills, to the tune of some $3.5 trillion. The same GOP that…blew through discretionary spending caps. The same GOP that has unofficially re-embraced earmarks. The party occasionally takes a breather—say to gripe about the Democrats’ $1.9 trillion Covid bill in 2021—but then it’s right back to the spending grindstone. When was the last time anyone heard a Republican talk about the need to reform Social Security or Medicare? That disappeared with the election of Donald Trump (opposed to both)… Instead, a growing faction of the party sees a future in buying the votes of working- and middle-class voters with costly new entitlement proposals of their own, such as expanded child tax credits.

I don’t know whether to laugh or cry.

But since laughing is more fun, here’s a cartoon about earmarks (which recently were endorsed by Republican lawmakers).

I’ll close with a tiny bit of optimism.

I’ve dealt with hundreds of politicians over the years, most of whom were Republicans.

By and large, they usually understand that big government is bad for prosperity. But there are two things that have an impact on their voting behavior.

  1. They are afraid of being rejected by voters who want freebies (especially the ones they already are receiving).
  2. But they might be willing to cast courageous votes if there is a real chance of a long-run change in policy.

To elaborate on the second point, there have been three periods of spending restraint in my lifetime: 1) the Reagan years, 2) the Clinton years, and 3) the Tea Party years.

In all three cases, there was a critical mass of lawmakers who were willing to do the right thing in spite of the usual incentives in Washington to do the wrong thing.

Is there a 4th period in our future? That depends on whether the GOP returns to Reaganism.

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As illustrated by the “anti-convergence club,” there is a very strong relationship between economic liberty and national prosperity.

Simply stated, people enjoy much higher levels of income in nations where there’s more free enterprise and less government.

But not everybody understands this relationship.

And it’s not just a problem on the left.

There are movements on the right (national conservatismcompassionate conservatismkinder-and-gentler conservatismcommon-good capitalismreform conservatism) that apparently think bigger government will produce positive outcomes.

For a very recent example, Chris Griswold asserted earlier this month in Newsweek that Republicans should reduce their infatuation with economic liberty.

American workers are intensely tired of getting, well, railroaded by libertarian economic ideology that treats them as cogs in the free-market machine rather than human beings whose dignity, family lives, and communities matter. And they want an economic agenda that will do something about it. It is the task of responsible conservative leaders to articulate such an agenda. …Capitalism only works when pursuing profit results in investment in domestic production and employment. When the pursuit of profit leads instead to offshoring, reckless financial speculation, and the destructive exercise of monopoly power, it’s time for public policy to step in. …The great mistake of Republican policymakers in recent decades has been to confuse their policies for principles, as if “Tax Cuts” and “Free Trade” are the essence of conservatism and must be upheld regardless of circumstances. …Many working families are weary of economic policy that treats them as disposable. The political party that best responds to them stands to earn the support of a governing working-class majority.

I actually laughed out loud when reading the above column. How can anyone who lived through the big-spending Bush years or the big-spending Trump years think that Republicans in recent decades have been motivated by “libertarian economic ideology”?

But the bigger problem with the article is that Griswold apparently thinks that there’s an alternative to “free markets” that would produce better results for the working class.

You’ll notice he offers no evidence for that assertion. That’s because all the evidence clearly shows that you get more prosperity where government plays a smaller role.

What we should be doing, of course, is helping workers by getting government out of the way.

Scott Lincicome’s column in today’s Wall Street Journal correctly summarizes some of the best ways of making that happen.

‘Standing up for the American worker” has long been a slogan synonymous with bigger government in Washington. …this pro-worker chorus has become loud and bipartisan—trumpeting tariffs, wage subsidies, benefits mandates and stricter labor regulations. Its champions have coalesced on the assumption that “free markets” have failed the working class. …the claim that markets have failed American workers ignores the panoply of federal, state and local policies that distort markets and raise the cost of healthcare, child care, housing and other necessities; lower workers’ total compensation; inhibit their employment or personal improvement; and deny them the lives they actually want. …modest changes to existing regulations would lower child-care prices by thousands of dollars with little effect on quality. …eliminating tariffs on food, clothes, shoes and other household essentials would increase parents’ real incomes even more. …reforming housing, licensing, criminal justice, K-12 education, welfare and other harmful policies would boost workers’ mobility, bargaining power and lifetime earnings. …many in Washington think of American workers as helpless, static and in need of government protection from cradle to grave, despite their registered preferences and the documented harms that such policies as European-style labor regulations can inflict on them and the U.S. economy more broadly.

Amen.

People who think more government is the answer have obviously asked a very silly question.

Speaking of questions, maybe Mr. Griswold can be the first person to successfully answer this question. I won’t be holding my breath.

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As we have seen in nations such as Greece and Argentina, voters sometimes cannot resist the temptation to support profligate politicians – a process that can lead to “goldfish government.”

In effect, voters choose fiscal suicide.

There’s even a quote, often mistakenly attributed to Ben Franklin, that this is the Achilles’ Heel of democratic governments (for what it’s worth, it appears that a Scottish historian, Alexander Fraser Tytler, was the real source).

Is the United States traveling down that path? Based on long-run fiscal projections, I’m not optimistic.

The good news is that there is still time to fix our problems.

The bad news is that the crowd in Washington is not interested in doing the right thing.

If you think I’m being unduly pessimistic, consider what House Republicans did earlier this week. As Kimberly Strassel explained in her Wall Street Journal column, they decided that the swamp is actually a hot tub.

Self-awareness isn’t one of the modern GOP’s strong suits, as House Republicans proved again this week. …Leader Kevin McCarthy in September unveiled to great fanfare the party’s Commitment to America, which vowed that Republicans would “curb wasteful government spending”… Then came Wednesday’s first test of whether this was all hot air… Rep. Tom McClintock moved to repeal the recent party rule allowing earmarks. The caucus routed his motion, voting it down 158-52. Commitment to America? More like Commitment to Spoils.

She added some historical context.

The GOP swore off earmarks in 2011, when it stood for something… But when a Democratic Congress in 2021 announced intentions to bring them back, GOP trough-feeders rushed to sign up. …And the addicts aren’t interested in rehab.

Her conclusion does not pull punches.

If Republicans can’t muster the backbone to get rid of earmarks that are an affront to spending discipline, good governance and federalism, voters won’t muster the enthusiasm to keep them in charge.

Back during the era of the Tea Party, Republicans did the right thing.

Nowadays, motivated by various forces such as big-government Trumpism and big-government national conservatism, Republicans do the wrong thing.

And if you wonder whether earmarks are wrong, here are some excerpts from a column in National Review by Romina Boccia.

Earmarking contributes to excessive spending and is a distraction from more fundamental governing responsibilities, such as reining in deficit spending… Supporters of earmarks insist that they are central to Congress’s exercising its constitutional power of the purse. …To the degree that Congress leaves too much discretion to the executive to determine federal funding allocations, it should address that issue directly… Looking at the details of where the money flows, it becomes clear that earmarks mostly authorize pork-barrel spending. …Such a misdirected focus inevitably invites fraud, waste, and abuse. …The 117th Congress included 4,963 earmarks worth a total of $9.1 billion in fiscal-year (FY) 2022 appropriations bills. From feral-swine management to aquarium subsidies to museum and theater funding to local bike paths, FY2022 earmark spending spanned the gamut of parochial interests. 

Needless to say (but I’ll say it anyhow), earmarks are directly linked to corruptions.

Politicians swap earmarks for campaign cash (and sometimes they even cut out the middleman!).

Defenders of this sleazy process sometimes claim we should not worry because earmarks represent just a small slice of a bloated federal budget.

But what they don’t realize – or what they don’t want the rest of us to understand – is that earmarks are a “gateway drug to big government addiction.”

So ask yourself a question: Do you think politicians who get lured into this oleaginous game will have any interest in controlling the overall burden of government spending?

P.S. Just in case everything I just wrote did not convince you that earmarks are a problem, then maybe this headline from September will be more compelling.

Such a depressing headline.

Such a depressing scam.

Such a corrupt system.

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The worst piece of legislation in 2021 was Biden’s so-called stimulus, which added $1.9 trillion to America’s fiscal burden.

The worst provision of that legislation almost certainly was a temporary per-child entitlement of $3,000-$3,600.

Biden then wanted to make this entitlement permanent as part of his $5 trillion plan to “build back better.”

Fortunately, that boondoggle sank under its own weight and the slimmed-down (but still bad) version that ultimately was enacted earlier this year did not include any per-child handouts.

That’s the good news, at least relatively speaking.

The bad news is that Congress and the White House have renewed their push for a permanent per-child entitlement.

And, because Republicans will control the House of Representatives starting in January, they are trying to push the policy through next month.

The Wall Street Journal editorialized today about per-child handouts.

A core Democratic priority in Congress is resurrecting a $3,000 child tax credit for dependents ages six and up, with a $600 bonus for younger children. …The Internal Revenue Service is now another turnstile of the welfare state. That’s because over time Congress made more of the credit “refundable,” which means available to those who don’t owe federal income taxes. …a universal basic income for people with children. …The full Democratic allowance would cost $1.6 trillion over 10 years… Low-income voters are always assumed to support cash benefits, but 46% of those earning less than $50,000 opposed the payments. That may be because Americans understand that poverty in the U.S. is now less about material deprivation and more about idleness, addiction, mental illness and other destructive realities that can’t be cured with a bigger check.

There were many arguments against these per-child handouts (reversing Bill Clinton’s welfare reform, setting the stage for universal basic income, etc).

But those topics are not playing a big role in this debate.

Instead, the White House and Congress are engaged in a naked vote-buying scheme.

They want to create more dependency, regardless of the economic and societal consequences.

What are some of those consequences? Those are discussed in a column by Scott Hodge, which also is in today’s Wall Street Journal.

He starts with a mea culpa about his role in creating child credits and also warns about the risks of creating a system where the IRS is a dispenser of goodies rather than a tax-collection agency for almost half the population.

I was one of the inventors of the child tax credit, nearly 25 years ago—and I think it’s a bad idea. …Key elements of this plan made their way into the 1994 House Republicans’ Contract with America. Congress enacted the $500 child tax credit as part of the Taxpayer Relief Act of 1997, and it grew from there. …The Bush tax cuts in 2001 temporarily doubled the credit to $1,000… The 2017 Tax Cuts and Jobs Act doubled the credit again, to $2,000… Each expansion meant fewer households on the tax rolls. …The expanded credit…contributed significantly to increasing the number of households with little or no income-tax liability. …some 74 million tax filers—or nearly half (48.3%) of all filers in 2021—had no income tax liability. …Can we have a sustainable tax system if the number of nonpayers continues to grow?

Since I’m mostly worried about the economic consequences, here’s the part of Scott’s column that grabbed my attention.

…recent studies estimating the economic effects of the proposed expansion suggest that it would cause people to leave the workforce, reduce work effort, and lower capital investment, ultimately shrinking economic output. A recent study by economists at the University of Chicago determined that without any changes in behavior, expanding the credit would reduce child poverty by 34% and “deep” child poverty—families whose income is less than half the poverty level—by 39%. But those gains would come at a cost: the diminution of the workforce by 1.5 million people. …A new study by Congress’s Joint Committee on Taxation…determined…the policy would reduce the labor supply by 0.2% and reduce the amount of capital by 0.4%. As a result of the reduced supply of labor and capital investment, gross domestic product would shrink by 0.2%.

I’m guessing that some readers will be shrugging their shoulders because numbers such as 0.2 percent and 0.4 percent don’t sound very big.

But keep in mind that we have dozens of bad policies in Washington that have this type of effect, and their cumulative impact is very big.

And for those who like comparisons, it’s worth observing that living standards in Europe are significantly below American levels precisely because politicians in places such as Greece, France, and Italy have made even more of these mistakes.

The bottom line is that free enterprise is the best way of helping poor people, not government dependency.

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I’ve written many times about terrible economic policy in Argentina, most recently two days ago while in that benighted country for a conference on fiscal policy.

Now that I’m heading back to the United States, I’m contemplating whether it is realistic to imagine an economic turnaround for Argentina.

We’ll start with some good news. Argentina has miserably low scores in Economic Freedom of the World and the Index of Economic Freedom.

So it would not be that difficult for economic policy to improve.

But the bad news is that Argentina needs to go way beyond incremental reform. The country has dropped precipitously since Peronism began after World War II. Rejuvenating the economy will require radical Chilean-style reform.

Given the current government’s statist orientation (and given the timidity of the opposition), there’s very little short-run hope.

But I am vaguely hopeful that things may get better. More specifically, Argentina almost surely will suffer a major collapse at some point in the future.

When that happens, the only option will be liberalization. Simply stated, politicians no longer will have any ability to pillage the private sector (sort of like the Soviet Union and Eastern Europe when communism collapsed).

Naomi Klein views this scenario as “disaster capitalism,” but it’s the only hope for Argentina.

But there’s a catch. Politicians in Buenos Aires will only be forced to reform if they don’t get another bailout from the International Monetary Fund.

Unfortunately, there are (according to Professor Steve Hanke) 22 reasons to expect the IMF to do the wrong thing.

The bureaucrats at that international bureaucracy have a terrible track record of rewarding Argentina when it gets in fiscal trouble.

Not just Argentina, by the way.

The IMF’s bureaucrats seem to thinkmoral hazard” is a good thing rather than a bad thing.

I wrote just last month that Italy is getting closer and closer to a fiscal crisis and I warned that the IMF may intervene to prop up that country’s bad policy. And when other European countries get in trouble, IMF bureaucrats will probably try to make a bad situation even worse with further bailouts.

And don’t forget what already happened in Greece (and almost surely will happen again).

The bottom line is that the IMF needs to be shut down (or at least cut off from US backing) if we want nations to do the right thing after taxing and spending themselves into a fiscal crisis.

P.S. If the US ever gets in deep trouble, at least the IMF won’t have the ability to do a bailout.

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When I write about Argentina, I normally have bad things to say.

Today, for only the second time, I’m going to say something positive about Argentina. At least in a back-handed way.

I’m currently in Buenos Aires for a conference. And because Argentinian monetary policy is even worse than U.S. monetary policy, the dollar is very strong and I’m able to enjoy great steak dinners for about $15.

Unfortunately, my gain is Argentina’s loss.

In a column for the Wall Street Journal, Dave Seminara discusses that nation’s long-run decline.

Argentina was one of the world’s seven richest countries at the turn of the last century thanks to its agricultural abundance. “People used to say someone is as rich as an Argentine.” …But bad governance has taken a heavy toll. More than a third of Argentines live in poverty and tens of thousands of small businesses closed during the pandemic. …nearly every young person…is plotting an escape to Europe or North America. …Argentina ranks 126th in the World Bank’s ease of doing business index and 96th on Transparency International’s corruption perception index, behind developing countries like Ethiopia, Tanzania and Kosovo. A bloated public sector weighs down Latin America’s third-largest economy. Roughly half the country either works for the government or depends on it for social welfare benefits. …The left’s mistakes in Argentina…profligate social spending, high taxes, and too many restrictions on commerce—are eerily similar to the priorities of the American left.

The most important passage in the above excerpts is that “Roughly half the country either works for the government or depends on it for social welfare benefits.”

How can you save a country when such a high percentage of the population has a direct incentive to vote for more government?

But it’s possible the outlook is even worse if you compared private sector workers to government bureaucrats.

Writing for National Review, Antonella Marty is very dismayed by Argentina’s trajectory.

Argentina’s annual inflation rate now exceeds 70 percent — a 30-year high. Its monthly inflation (just under 8 percent) is comparable to the U.S.’s annual inflation… Argentina is starting to resemble Venezuela — and no country wants to resemble Venezuela. How did things get this bad? The answer is actually quite simple: a big government that loves printing money. For decades, government intervention in Argentina’s economy has ballooned to such an extent that the state basically dictates the overwhelming majority of private-sector activity either directly or indirectly. The public sector’s meddling is notorious, crowding out the entrepreneurship, innovation, and job creation that keeps markets free and healthy. While Argentina’s population exceeds 45 million people, only about six million Argentines are employed in the private sector, while 55 percent of the country’s registered workers are employed by the government.

I don’t know which factoid is more depressing. Is it that “only about six million Argentines are employed in the private sector” or is it that “55 percent of the country’s registered workers are employed by the government”?

For what it’s worth, I assume “registered workers” does not include people in the underground economy. And because taxes and red tape are such a nightmare in Argentina, a lot of economic activity has been forced into the shadows.

But that does not change the fact that the country has a far-too-heavy burden of government. Politicians have turned a rich country into a basket case. And the situation seems to get worse every year, even when supposedly right-leaning governments occasionally get elected.

P.S. There’s an interesting debate whether Woodrow Wilson or Franklin Roosevelt was the worst president in U.S. history. In Argentina, there’s no ambiguity.

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Last week, I explained that “supply siders” need to be ardent advocates of spending restraint. After all, there is no chance of good tax policy in the future if the burden of federal spending continues to expand.

I also wrote about “national conservatives” and pointed out that their opposition to entitlement reform means they implicitly embrace massive tax increases.

The bottom line is that the United States has a built-in spending crisis. Democrats are not serious about addressing the problem. So if Republicans bail as well, the nation is doomed to become a decrepit, European-style welfare state.

What does that mean? Nothing good, at least for people in the productive sector of the economy.

In an article for National Review, Philip Klein speculates whether there is any appetite for spending restraint, even among self-described conservatives.

For much of the history of the American conservative movement, limiting the size and scope of government has stood as one of its central goals. …In 2022, such messages were barely anywhere to be found on the campaign trail…conservatives have largely moved on from making the case for reducing the size and power of Washington. In some cases, this shift has been passive. …It has become popular in some circles on the right to mock “zombie Reaganism” and insist that while it may have made sense back in the 1980s to argue for smaller government, such a message is now outdated. …the argument that the battle to limit government has already been lost also neglects to recognize that things could always get worse. That is, even though the federal government has gone through extraordinary growth since the New Deal, it would have grown even larger had there been no conservative movement to push back. One need only look at Europe, where conservative parties long ago made their peace with the welfare state, to see how government agencies have crowded out civil society… There is no way in which a nation with…a ballooning welfare state will be an accommodating place for conservatives in the long run, no matter how much some may fantasize about seizing the dragon and precisely aiming its fire at their enemies during the relatively brief windows in which Republicans have power. Conservatives…should not abandon the fight for limited government.

At the risk of understatement, I fully agree.

I wrote two days ago and also the previous week to make the case for spending restraint.

Those are easy columns to write since it is the same argument I’ve been making my entire life. But what is depressing now is that there is opposition from Republicans as well as Democrats.

Maybe they should all be forced to watch my video series on the economics of government spending.

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In the past couple of months, I’ve repeatedly addressed the fiscal and economic mess in the United Kingdom.

Today, we’re going to zoom out and identify the main cause of all the problems.

If you look at the annual budget numbers published by the Treasury Department in the United Kingdom, the first thing to notice is that there was a big surge of spending for the pandemic.

One can certainly argue that pandemic-related spending was necessary to deal with a one-time emergency.

Indeed, the same thing happened in the United States.

This second chart, however, shows the real problem with fiscal policy in the United Kingdom. Politicians have used the one-time emergency has an excuse to impose a permanent increase in the country’s spending burden.

This is an indictment of former Prime Minister Boris Johnson’s profligacy.

Johnson was then replaced by the short-lived Liz Truss, who proposed lower taxes but offered no plan to restrain spending.

And now the new Prime Minister, Rishi Sunak, seems committed to an ongoing policy of higher taxes to finance permanently larger government.

In an article for Reuters, William Schomberg reports that the Chancellor of the Exchequer (akin to the U.S. Treasury Secretary) apparently thinks higher taxes are needed to save the economy.

British finance minister Jeremy Hunt said he will have to raise taxes in next week’s budget plan in order to fix the public finances and soften a potentially long recession… “This is going to be a big moment of choice for the country and we will put people ahead of ideology,” Hunt told the Sunday Times in an interview. …Hunt and Sunak are trying to prepare their Conservative Party for the tax increases which could reignite tensions in the party… Hunt was also considering a multi-billion-pound package of support to shield pensioners and benefit claimants from higher power bills, the newspaper said.

At the risk of understatement, Jeremy Hunt knows nothing about economics. Or history.

I wish a reporter would ask him to name a single country, at any point in world history, that achieved more prosperity by raising taxes and increasing the burden of government spending.

I’ll close with a couple of additional observation.

P.S. I never thought I would be reminiscing fondly about the fiscal policies of David Cameron and Theresa May.

P.P.S. But Margaret Thatcher is still the gold standard for responsible U.K. fiscal policy.

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I discussed Italy’s looming fiscal crisis on Monday and then argued against a potential bailout on Tuesday.

Today, let’s focus on the rest of Europe.

I gave a presentation yesterday in Brussels about “Public Finances in the Eurozone” and used the opportunity to explain that governments are too big in Europe and to warn that demographic changes were going to lead to an even-bigger burden of government in the future.

My assessment is very mainstream, at least with regards to what will happen to national budgets in European nations.

A study from the Organization for Economic Cooperation and Development, authored by Yvan Guillemette and David Turner, examines the long-run fiscal position of member nations.

It warns that government debt levels will increase dramatically if they don’t change current policies.

… secular trends such as population ageing and the rising relative price of services will keep adding pressure on government budgets. Without policy changes, maintaining current public service standards and benefits while keeping public debt ratios stable at current levels would increase fiscal pressure in the median OECD country by nearly 8 percentage points of GDP between 2021 and 2060, and much more in some countries. …governments will need to re-assess long-run fiscal sustainability in the context of higher initial government debt levels…when considering expenditure pressures associated with ageing…, the OECD structural primary balance would deteriorate rapidly and net government debt would more than double as a share of GDP by 2050 (Figure 12).

Here is the aforementioned Figure 12. As you can see, both deficits (left chart) and debt (right chart) are driven by the cost of age-related entitlement programs.

The report also explains that the increase in red ink is being caused by a bigger burden of government spending.

Under a ‘business-as-usual’ hypothesis, in which no major reforms to government programmes are undertaken, public expenditure is projected to rise substantially in most countries… Public health and long-term care expenditure is projected to increase by 2.2 percentage points of GDP in the median country between 2021 and 2060… Public pension expenditure is projected to increase by 2.8 percentage points of GDP in the median country between 2021 and 2060… Other primary expenditures are projected to rise by 1½ percentage points of GDP in the median country between 2021 and 2060 (Figure 13, Panel A). This projection excludes potential new sources of expenditure pressure, such as climate change adaptation.

Here’s Figure 13, mentioned above. Notice the projected increases in spending in most European nations.

So what’s the best response to this slow-motion fiscal disaster?

Since more government spending is the problem, you might think the OECD would recommend ways to restrain budgetary expansion.

But that would be a mistake. As is so often the case, OECD bureaucrats think giving politicians more money is the best approach.

The present study…uses an indicator of long-run fiscal pressure that is premised on the idea that governments would seek to stabilise public debt ratios at projected 2022 levels by adjusting structural primary revenue from 2023 onward. … all OECD governments would need to raise taxes in this scenario to prevent gross government debt ratios from rising over time… The median country would need to increase structural primary revenue by nearly 8 percentage points of GDP between 2021 and 2060, but the effort would exceed 10 percentage points in 11 countries.

To be fair, the authors acknowledge that there might be some complications.

Raising taxes…appears feasible in some countries…, in other countries it may present a substantial challenge. In Belgium, Denmark, Finland and France, for instance, structural primary revenue is already around 50% of GDP… Pushing mainstream taxes on incomes or consumption further up, even by only a few percentage points of GDP, may be politically difficult and fiscally counter-productive if it means reaching the downward-sloping segment of the Laffer curve… Lundberg…identifies five OECD countries where top effective marginal tax rates (accounting for income, payroll and consumption taxes) are already beyond revenue-maximizing levels (Austria, Belgium, Denmark, Finland and Sweden). Thus, if taxes are to rise, it might be necessary to look to other bases, such as housing, capital gains, inheritance or wealth. Recent international efforts to establish a minimum global corporate tax could also enable more revenue to be raised from corporate taxes.

I’m happy that the study acknowledges the Laffer Curve, though that is not much of a concession since even Paul Krugman agrees that it exists.

And even when OECD bureaucrats admit that it may be unwise to increase some taxes, their response is to suggest that other taxes can be increased.

Sigh.

Now you understand why I’ve argued that the OECD may be the world’s worst international bureaucracy. Especially since OECD bureaucrats get tax-free salaries while urging higher taxes on the rest of us.

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In a recent column about Haiti, I cited a New York Times column and expressed puzzlement that the author could write about that nation’s poverty and barely mention the role of economic policy.

Today, we’re going to focus on Nigeria.

Just like two days ago, let’s start by laying out some facts about the quality (or lack thereof) of the country’s economic policy.

We’ll begin with some very bad numbers from the Heritage Foundation’s Index of Economic Freedom. As you can see, Nigeria ranks #124, with failing grades in many key area.

To be sure, ranking #124 is not as bad as being North Korea, which is in last place at #177. Or Venezuela, or Cuba, which are the next-to-last jurisdictions.

But we can safely say that Nigeria is a country with very little economic liberty.

And the Fraser Institute’s Economic Freedom of the World tells a similar story. Nigeria is mired in the next-to-last quartile and ranks #92 (out of 165) in the world.

The country is especially bad on trade policy and the rule of law (legal system and property rights).

So why am I citing all this data?

Because I just read an article in Foreign Affairs about that nation’s economic misery and – just like the article about Haiti – it cries out for correction.

In this case, though, the article actually focuses on the role of economic policy, but from a very misguided perspective.

Authored by Amaka Anku, it tells readers that the problem in Nigeria is that government is not strong enough or active enough.

…despite having the world’s ninth- and tenth-largest natural gas and crude oil reserves, respectively; one of the world’s largest swaths of arable land; and a young and entrepreneurial population, Nigeria has fallen far behind peer countries such as Indonesia and South Korea when it comes to gross national income, GDP per capita, and industrial production. …the state is unable to stimulate broad-based economic growth. …the view that a strong and capable state is required to create the conditions for economic transformation is slowly gaining ground. …Nigeria must aspire to much more…to strengthen the federal government… A better resourced civil service…would make it easier to attract talent and help transform an inefficient bureaucracy into one that can stimulate and effectively regulate local industry. …

Ms. Anku makes several bold assertions, such as the value of “a strong and capable state” and a supposed need “to strengthen the federal government,” in part via “a better-resourced civil service.”

There is an attempt to justify the aforementioned statements.

She claims that nations such as Singapore are the role model. Or even the United States in the 1800s.

…although the role of a strong state in stimulating the economic transformation of newly industrializing countries such as China, Singapore, and South Korea is relatively well understood, ideological blinkers have prevented many Western scholars and policymakers from acknowledging that a strong central government played a similar role in the United States’ own economic takeoff. …Among the most important federal interventions—but by no means the only ones—were extensive subsidies for national transport infrastructure, strategic investments in emerging technologies, and strong support for fair labor and other redistributive policies that ensured a level playing field and improved worker productivity.

I have a semi-friendly response to Anku’s article and a…well, let’s call it a skeptical reaction.

The sympathetic response is that it’s good to have a small-but-competent government. Indeed, that’s the argument made by “state-capacity libertarians” and others who argue that the U.S. had such a system in the 1800s.

Nowadays, Singapore often is a role model for these people. So if Anku is suggesting that Nigeria should copy Singapore (the world’s second-freest economy), I’ll be the first to applaud.

But I suspect that’s not what she has in mind. For instance, Ms. Anku expresses support for “redistributive policies.”

That’s not consistent with Singapore’s approach. And South Korea has a relatively small welfare state compared to other OECD nations. Heck, the United States had no welfare state back in the 1800s.

Sadly, I fear Ms. Anku’s concept of “a strong and capable state” is probably akin to what the IMF and other international bureaucracies are peddling.

In  other words, higher taxes and bigger government based on the anti-empirical notion that this will magically deliver prosperity.

Needless to say, that’s bunk.

P.S. I also can’t resist pointing out that it’s silly for Ms. Anku to equate China, Singapore, and South Korea. Singapore and South Korea are examples of “tiger” economies. But China lags well behind because it does not have the pro-market policies that enabled the other two nations (as well as places like Hong Kong and Taiwan) to become very rich very fast.

P.P.S. Trump also misinterpreted U.S. policy in the 1800s.

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I have repeatedly opined that big government enables corruption.

And I have also asserted over and over again that big government is a racket for the benefit of insiders.

So you can understand why I get upset when the rich and powerful use the coercive power of government to line their pockets at the expense of ordinary taxpayers.

Now I have a new reason to be angry.

Reporting for the New York Times, Neil MacFarquhar describes a scandal involving Mississippi bigwigs feeding at the public trough.

John Davis, who served as executive director of the Mississippi Department of Human Services under former Gov. Phil Bryant, pleaded guilty to both federal and state charges of embezzling federal welfare funds. Millions of dollars were transferred to friends and relatives, court documents say. According to a lawsuit filed by the state in May, around $5 million was diverted to Ted DiBiase, a flamboyant retired wrestler once known as “The Million Dollar Man,” and two of his sons… Much of the money went to fictitious services, bogus jobs, first-class travel arrangements and even one son’s stay at a luxury rehab center in Malibu, Calif., that cost $160,000, the suit claims. Similarly, the state claims that Marcus Dupree, a former high school football phenom and professional running back, who was paid to act as a celebrity endorser and motivational speaker, did not perform any contractual services toward the $371,000 he received to purchase and live in a sprawling residence with a swimming pool and adjacent horse pastures in a gated community. Mr. Favre, who earned more than $140 million in his Hall of Fame career, was paid $1.1 million for speeches he never gave, the suit said. He also orchestrated more than $2 million in government funds being channeled to a biotechnology start-up in which he had invested, according to the suit. …The case follows a state audit released in May 2020 suggesting that as much as $94 million of TANF funds might have gone astray.

Sounds like a typical story about big government and corruption, right?

That’s certainly true, but some of our friends on the left argue that it is also evidence that Bill Clinton’s welfare reform backfired.

Experts said the fraud was rooted in changes enacted in such programs in 1996, when cash benefits paid to poor families were replaced by block grants issued to states.

Since I have defended Clinton’s welfare reform (along with some of his other good policies), the above excerpt caught my attention.

So I looked for more information.

In a piece for the American Enterprise Institute, Angela Rachidi explains the underlying issues.

A scandal involving former NFL quarterback Brett Favre and the federal welfare program Temporary Assistance for Needy Families (TANF) exploded…following new revelations that Mississippi officials, including the former governor, misdirected federal TANF money to enrich themselves, their celebrity friends, and other well-connected individuals. …the scandal draws attention to the TANF program. Critics have partly blamed the welfare reform law from 1996, which created TANF, for allowing such fraud. …Instead of an entitlement where government officials distribute money to all eligible people, TANF is a block grant provided… As awful as this scandal is, the fraud and abuse on display in Mississippi is not unique to TANF and not caused by its block grant structure. The Government Accountability Office (GAO) estimated that from 2015–2017 the annual average amount of Supplemental Nutrition Assistance Program (SNAP) benefits (or food stamps) “trafficked,” meaning retailers taking a fraudulent profit, was $1.2 billion. The GAO also found that improper payments in Medicaid, including payments for services not provided, totaled $36.7 billion in 2017. Earlier this month, the Department of Justice charged a nonprofit organization in Minnesota with a $250 million scheme that took federal pandemic-relief money earmarked for a child nutrition program and instead pocketed the funds.

In other words, corruption is an inherent part of government programs, whether the money is distributed as block grants or sent directly to recipients.

But not all government spending is created equal. Some ways of spending money do more damage than other ways of spending money.

Ms. Rachidi points out that welfare reform produced good results.  I don’t know if it saved money for taxpayers, but it led to progress as measured by variables such as labor force participation and child poverty.

None of this excuses what happened in Mississippi, but the context is important. Welfare reform, which created TANF, transformed a broken entitlement program—Aid to Families with Dependent Children—into a more effective system that gives states flexibility to address the underlying causes of poverty, including limited employment and unmarried parenthood. These reforms have significantly reduced dependence on cash welfare and increased employment among single mothers, which helped dramatically lower child poverty over the past two decades.

The obvious takeaway, as I pointed out back in 2015, is that we should we should be expanding on Bill Clinton’s success by replacing other federal entitlements with block grants.

The federal government maintains a Byzantine maze of redistribution programs, so there are lots of opportunities for progress. Medicaid is an obvious example, along with food stamps. Especially since both programs are riddled with fraud.

P.S. Unsurprisingly, Joe Biden wants to move in the wrong direction.

P.P.S. In my libertarian fantasy world, the federal government would have neither entitlements nor block grants. That also happens to the world envisioned by America’s Founders (and the reality Americans enjoyed up until the 1930s).

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I often cite the OECD’s data on “actual individual consumption” to show that the average American enjoys higher living standards than the average European.

In this clip from a recent presentation, I compare the United States and France.

I’m motivated to write on this topic because of a recent tweet from Arnaud Bertrand.

I don’t know who he is, but he shares some very depressing data about the well-being of ordinary people in France.

The above data, according to Monsieur Bertrand, is before taxes on income.

Which makes me curious, of course, so I went to the OECD’s data on “Taxing Wages.”

Here is the data from Table 3.1, showing the tax burden on lower-income and middle-class taxpayers in France and the United States.

As you can see, the tax burden is much higher in France for every type of household. It doesn’t matter whether the household is single or married, the level of income, or the amount of children.

Indeed, the tax burden in France in every case is above the OECD average and the tax burden in the US is below average.

And don’t forget that average Americans also have much higher incomes than their French counterparts.

The bottom line is that Americans earn more and keep more. Something the keep in mind the next time one of our leftist friends agitates to make America more like Europe.

P.S. From the perspective of French taxpayers, the only good news is that nobody seems to be treated as poorly as the Spanish government treats Senor Alvarez.

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The people of Iran are protesting against their tyrannical government. The trigger for the anger and unrest is the murderous brutality  of the nation’s so-called Morality Police.

I can’t help but wonder, though, whether there’s also national discontent because of bad economic policy.

According to the latest edition of Economic Freedom of the World, Iran has one of the world’s most repressive governments. Of the 165 jurisdictions, only Libya, Argentina, Syria, Zimbabwe, Sudan, and Venezuela rank lower.

In other words, the Iranian government restricts economic freedom just like it restricts political freedom.

And that has very adverse consequences for the prosperity of the Iranian people, notwithstanding the fact that the nation has abundant energy resources.

Here’s a chart, derived from the Maddison database, that shows how Iran has fallen far behind Bahrain when measuring per-capita economic output.

I picked Bahrain because that’s the nation in the Middle East that ranks highest for economic liberty (#39).

This gives us another example of the “anti-convergence” that occurs when two nations have big differences in economic freedom.

The bottom line is that Iran has a horrible government for more reasons than we’re seeing in today’s headlines.

P.S. Here’s a comparison of economic liberty over time in both Iran and Bahrain.

P.P.S. Western sanctions against Iran obviously undermine prosperity, just as similar sanctions hurt places such as Cuba, North Korea, and Venezuela. I like when people make this point since it shows they (at least implicitly) are making the case for free trade. But I disagree if they want people to believe that such sanctions explain more than a small fraction of the problems in those nations.

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At the risk of over-simplifying, there are three types of Republicans/conservatives today (at least from an economic perspective).

  • Reaganites – principled supporters of smaller government and individual liberty.
  • Trumpkins – populists or national conservatives who don’t care about the size of government
  • Bushies – the establishment crowd that often supports a bigger burden of government

Regular readers know which option I prefer, but I can appreciate anyone who has a consistent point of view (hence, my Ninth Theorem of Government).

Today’s column, however, is about how right-leaning organizations deal with the different strains of conservatism. Particularly when they have to deal with politicians.

I’m motivated to cover this topic since the Heritage Foundation (where I worked from 1990-2006) is under attack.

We’ll start with some excerpts from an article in the Dispatch by Audrey Fahlberg  Charlotte Lawson.

…some former employees believe Dr. Kevin Roberts, president of the Heritage Foundation since December 2021, and other senior leaders have lost sight of the think tank’s original mission. Where it used to function as a haven for conservative intellectuals to shape the Republican Party’s agenda, many worry that the institution is attaching itself to a faction of the conservative movement that prioritizes partisanship over policy. …Several former employees cited Heritage’s departure from its foundational commitments—without the knowledge or consent of the scholars hired to translate them into policy positions—as their reason for leaving. Others pointed to one-on-one confrontations with the members of the leadership team over the organization’s ideological trajectory. Fights over who sets Heritage’s “one-voice policy”—which requires that all staff be publicly aligned on any given issue—have caused much of the friction. …Whereas scholars at right-leaning 501(c)(3) research institutions like Cato Institute, the Hudson Institute, and the American Enterprise Institute (AEI) are permitted and often encouraged to disagree with each other about policy issues, Heritage prides itself in projecting the same voice on every policy issue.

The main bone of contention is whether to give full support to Ukraine.

The disputes extended beyond the debate over Ukraine and preceded Roberts’ leadership. Several former experts and researchers detailed limitations on their intellectual freedom beginning in the Trump era… “There were several instances where I was asked to scrub the phrase ‘President Trump’ from my pieces. I think it was to tamp down any suspected criticism,” said one former Heritage employee, speaking on the condition of anonymity to speak candidly about internal dynamics. “We were definitely discouraged from mentioning the Biden administration by name as well, unless we were attacking them.” …At the tail end of the Trump presidency, one former communications staffer said, the media team shut down requests to schedule economics scholars for television appearances about the U.S.-Mexico-Canada Agreement to preemptively quash any public criticism of Trump’s support for the trade deal. …Some tension has emerged between establishment conservatives and the national conservatives on Capitol Hill, though national conservatives are from the dominant force in the GOP today. That’s not necessarily the case at Heritage. Tori Smith—a former trade policy analyst at Heritage…observed that a similar “tension is playing out at Heritage, and the nationalist conservatives are winning, it’s abundantly clear.”

In a column for the Washington Post, Josh Rogin opined about this controversy inside the conservative movement.

The Heritage Foundation’s turn toward the “new right” is the clearest symbol yet that the MAGA movement’s foreign policy is becoming institutionalized… Some former staffers told me Roberts has prioritized political messaging over policy formation. As Heritage becomes beholden to the MAGA movement’s political whims, these analysts allege, the organization is now following the mob rather than leading it… On Ukraine, Heritage has broken with center-right think tanks such as the American Enterprise Institute and the Hudson Institute and is now aligned with the Center for Renewing America (run by Donald Trump’s former budget director Russ Vought), the Koch Institute, and conservatives at the Quincy Institute, who all argue for “restraint,” meaning the opposite of the long-standing internationalist bipartisan D.C. foreign policy consensus. …at the National Conservatism Conference, Roberts said, “I come not to invite national conservatives to join our conservative movement, but to acknowledge the plain truth that Heritage is already part of yours.” …on Fox News, Roberts said it’s time for the United States to declare independence from the “liberal world order.”

I’m not an expert on foreign policy, but I fully agree with the folks at Heritage that non-military foreign aid will not help Ukraine.

But I am wholly sympathetic to that country’s fight against Putin’s aggression. And I’m not sure if Heritage’s opposition to the “liberal world order” means standing aside while Ukraine is attacked.

I’ll close with a broader point about Trump, so-called national conservatism, and think tanks. Heritage’s president said that his organization is “already part of yours” in a speech to national conservatives.

This worries me. At the risk of understatement, national conservatives don’t seem very interested in controlling the size and scope of government.

I’m a believer in “fusionism,” the idea that conservatives and libertarians can be strong allies on economic issues. But that won’t be the case if groups like the Heritage Foundation throw in the towel.

P.S. Not surprisingly, I did side with my former employer when it was attacked by Paul Krugman.

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This probably does not quite belong in my collection of “most depressing charts,” but it is definitely very bad news that taxes now impose a greater burden on the average American household than the combined cost of food, clothing, education, and health care.

This is remarkable, especially since education and health care are needlessly expensive because of government intervention.

The dismal numbers in this chart come from an article in Reason by Elizabeth Nolan Brown.

There are not numbers she pulled out of the air. They are from a new report by the Bureau of Labor Statistics.

Here are some excerpts from Ms. Brown’s article.

New consumer spending data from the Bureau of Labor Statistics (BLS) provides some sobering perspective on how much Americans are paying in taxes. …Overall, taxes accounted for about 25 percent of average consumer spending. …On average, each “consumer unit” paid more than $16,000 in taxes last year. This outpaces average spending on food, clothing, education, and health care combined. …This included $8,561.46 in federal income tax, $2,564.14 in state and local income taxes, $2,475.18 in property taxes, $5,565.45 in Social Security deductions, and $105.21 in other taxes.

Ms. Brown’s article says the total tax burden is more than $16,000 while my chart shows that the average tax burden is approaching $19,000. The difference is that she subtracts out so-called stimulus payments, but I think it is more accurate to view those as handouts rather than as tax rebates.

Regardless, the real burden for the average household is actually higher than either number thanks to an absurdly complex tax system.

Household have to spend time, energy, and money to figure out their taxes. And they also pay indirectly because businesses have to pass on their even-higher tax compliance costs to households.

Finally, we should be asking ourselves whether we are getting the same value from coercive taxes that we get from our voluntary spending on food, clothing, education, and health care. All it takes is one trip to McDonald’s and my answer is no.

Heck, given the grotesque inefficiency of government and the economic harm caused by excessive spending, we get negative value from our taxes.

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Last month, I wrote an article comparing Switzerland’s admirable fiscal policy with the profligate tendencies of other European nations.

I included a chart showing that the burden of government spending in Switzerland is far below where it is in countries such as Belgium, Greece, and France – where the public sector consumes about 60 percent of economic output.

And then there are nations such as Germany, Spain, Sweden, Denmark, and Italy, where more than 50 percent of GDP is diverted to finance bloated budgets.

Given this background, I was not surprised to read an article in the New York Times about European politicians engaging in another spending binge.

Nationalizations. Subsidies. Cash handouts. Price caps. Profit taxes. …Governments are resorting to old-school solutions, …throwing vast amounts of money at the energy crisis engulfing the region… E.U. governments have already earmarked more than $350 billion to subsidize consumers, industry and utility companies; ministers met on Friday to narrow down their options for the bloc’s direct intervention in markets to grab excess profits, cap electricity prices and subsidize utilities companies. “Government intervention is back in vogue in a really big way,” said Mujtaba Rahman, Europe director at the consulting firm Eurasia. …The huge public spending is in addition to a nearly trillion-dollar stimulus package adopted over the past year to deal with the economic fallout from the pandemic, mostly through borrowing. …spending billions…may be the only way to keep voters on board with Europe’s strong support of Ukraine against Russia.

The fact that Europe “turns once again to big spending” surely must win a prize for least surprising headline.

What is surprising, though, is some of the mistakes in the article. The reporter, Matina Stevis-Gridneff, seems to think that Europe has been some sort of bastion of laissez-faire fiscal policy.

It’s back to 20th-century economics in Europe. …The standoff with Russia over Ukraine is upturning European economic orthodoxy at rapid speed with barely a peep of dissent at the European Union’s headquarters in Brussels, a bastion of neoliberalism that not so long ago imposed brutal austerity on its own members, most notably Greece, even after it became clear it was harmful. …The ballooning debt load would have normally caused an uproar in the bloc, where fiscal conservatism has dominated policy and politics for years. …Paolo Gentiloni, the top E.U. economic official, ..said that the E.U. would begin to consider changes to its stringent fiscal rules

I’m not sure which part of the above excerpt is most at odds with reality.

  • “A bastion of neoliberalism.” To be blunt, that’s wildly wrong.
  • “Brutal austerity.” To be blunt, that’s wildly wrong.
  • “Fiscal conservatism has dominated policy.” To be blunt, that’s wildly wrong.
  • “Stringent fiscal rules.” To be blunt, that’s wildly wrong.

Though, to be fair, Greece was forced to engage in real austerity for a few years last decade. Though that only happened after a lengthy period of profligacy.

And the Greek people suffered immensely because the government over-spent for so many years.

What’s tragic is that other European nations, led by Italy, almost surely will suffer Greek-style fiscal crises. And the European Central Bank is making a bad situation even worse.

P.S. My other “least surprising headline” columns can be found here, here, and here.

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When I went to Chile last December to write about that nation’s election (see here, here, here, here, and here), I concluded my coverage with a column about the risks of changing that nation’s constitution.

This video from Reason is a fresh look at that topic.

The people of Chile make their choice today.

What’s at stake is whether they want to preserve a constitution based on liberties or replace it with one based on entitlements (the long-standing debate between “negative rights” and “positive rights”).

This should be an easy choice. The current constitution limits the power of government and has helped Chile become the Latin Tiger. Incomes have jumped and poverty has plummeted.

Let’s look at some analysis and commentary.

We’ll start with a story for the New York Times by Jack Nicas, which explains what is happening today.

Voters in Chile on Sunday could transform what has long been one of Latin America’s most conservative countries into one of the world’s most left-leaning societies. In a single ballot, Chileans will decide whether they want…universal public health care; gender parity in government; empowered labor unions; …rights for animals and nature; and constitutional rights to housing, education, retirement benefits, internet access, clean air, water, sanitation and care “from birth to death.” …If voters approve the text, Chile…would suddenly have more rights enshrined in its constitution than any other nation. …The 170-page text would make the Chilean state, which has long had a limited role in its citizens’ lives, the guarantor of more than 100 rights… In addition to housing, health care and education, the new constitution would enshrine the right to…free time, physical activity, sex education, cybersecurity, the protection of personal data and “free and full legal advice” for anyone “who cannot obtain it.” …implementing the new constitution would cost the government 9 percent to 14 percent of Chile’s gross domestic product.

Now that we have the basics, let’s look at whether the new constitution is a good idea.

Writing for National Review, Daniel Di Martino condemns the document.

Chileans…will vote on whether to adopt or reject a proposed constitution written by a socialist-controlled assembly. The document, consisting of 388 articles, would create an unequal justice system and grant more rights for those who claim indigenous ancestry. It would effectively end private health care and education, and it would allow the congress to confiscate Chileans’ pension savings. …The proposed Chilean constitution reads like a longer, more woke, and even more socialist version of Venezuela’s constitution. …It’s a socialist policy wish list. …The proposed constitution would abolish the free-market protections that enabled Chile to become so prosperous. …The proposal prohibits any for-profit educational enterprise at every level, with the result that many private schools would close. …The proposed new law of the land would authorize the government to confiscate accumulated private retirement savings… Chileans have a choice to make in September. Will they vote no on the proposed constitution and keep Chile free and prosperous, or will they vote yes and follow the socialist path of Venezuela?

In case you think Di Martino is exaggerating, a Washington Post report by John Bartlett and Samantha Schmidt reaches the same conclusion, albeit without the criticism.

Chile’s new constitution, a 388-article charter that envisions a progressive, feminist future for the South American nation. …The constitution is one of the first in the world to be drafted in the context of a climate crisis, and to be written by a convention with gender parity. …It’s a woke constitution propelled by left-leaning millennials and built for a modern nation led by one. …One section…would make the government responsible for preventing, adapting to, and mitigating the effects of climate change. …The charter would make the government responsible for providing free higher education, health care and many other services. It would guarantee a right to housing, and to leisure time. It would require that at least half of all members of government and congress, and employees of public and public-private companies, be women.

As you might expect, Mary Anastasia O’Grady of the Wall Street Journal is not a fan.

The document removes the certainty of personal choice—including in healthcare, pensions and education—weakens property rights, increases the role of the state in the economy and moves the country away from representative democracy and toward mob rule. …the high-performing Chilean economy of the past three decades could be headed to a level of mediocrity similar to that of its neighbors Bolivia and Argentina. …The U.S. Constitution has been successful, in large part, because it constrains government power. Conversely, turning a constitution into a laundry list that mistakes entitlements for rights, and promises to guarantee those rights by empowering the state, is a ticket to poverty and tyranny.

Daniel Raisbeck of Reason wrote about the superiority of the current system last month.

Chile’s current, pro-free market constitution…has served the country well, bringing staggering economic success by Latin American and even global standards. But in an October 2020 referendum, 78 percent of Chilean voters chose to ditch the constitution… It seemingly mattered little to voters that, for years, Chile has had one of the region’s highest per capita GDP. …Poverty…decreased from 45 percent in 1982 to a mere 8 percent in 2014… Not bad for a nation whose economy between 1950 and 1970 was, according to a Library of Congress country study, “the poorest among Latin America’s large and medium-sized countries.”

It’s no surprise that conservatives and libertarians oppose the draft constitution.

But the document is so radical and impractical that the left-leaning Economist opined against the pact.

The document is far less…growth-friendly than the current constitution. It gives trade unions the sole right to represent workers, guarantees them a say in corporate decision-making and allows them to strike for any reason… It says that everyone has the “right to work” and that “all forms of job insecurity are prohibited”. That could make it rather hard to fire anyone. Landowners, such as farmers, could potentially lose the property rights to water on their land. Compensation for expropriated land would not be at a market price but at whatever Congress deems a “just” one. The draft creates a portfolio of socioeconomic rights that could blow up the budget. It requires the establishment of several new bodies, such as an integrated national health system, and cradle-to-grave care, without giving much thought to how they would be funded. The state would oversee the provision of housing, to which it says every person has a right. …Rather than scrapping the old constitution, Chileans should scrap the new one.

And even the Washington Post editorialized against it.

Opponents of the new constitution…worry that uncertainty will hinder investment while a new congress tries to translate new constitutional provisions on mining and other natural resources into legislation. Then there is the complexity of a document that consists of 54,000 words, 388 articles and 178 pages — including a provision on the state’s duty to “promote the culinary and gastronomic heritage of the country.”

But the hard left is mobilized and supportive.

Indeed, David Adler wrote in the U.K.-based Guardian that Chile’s leftist constitution should be a model for all nations.

…a visionary document that would not only update, expand and advance Chileans’ basic rights – to health, housing, abortion, decent work and a habitable planet – but also set a new standard for democratic renewal in the 21st century. …a document that responds directly to the escalating crises of inequality, insecurity and a changing climate. The constitution establishes new universal public services for health, education, and clean water. It endows nature with rights…it finally turns Chile into a full democracy, with gender parity in public institutions, self-determination for Indigenous peoples, collective bargaining for all workers… Chile has shown the way to a new constitutional order – rich with rights.

At the risk of understatement, Mr. Adler is nuts.

You can’t create rights to get goodies unless you also create a “right” to take from others. And that’s a distasteful recipe for a system that punishes success and rewards indolence.

What makes Adler’s analysis so foolish is that there’s compelling research showing that economic liberty produces the outcomes associated with so-called positive rights.

Today’s vote will show whether Chileans understand that free markets lead to more upward mobility and higher living standards. If they want less poverty, they should want more capitalism, not a dirigiste constitution.

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Way back in 2009, in the early days of writing this column, I shared an image that aptly summarizes the bad things that happen when politicians interfere with economic liberty.

The simple message is that more government is almost always the wrong answer.

Today, we’re going to look at an example of how government spending is the wrong answer.

Here are some excerpts from a story in the Washington Post, but the headline tells you everything you need to know.

The offer to military veterans left unemployed by the coronavirus pandemic was tantalizing: A year of online courses courtesy of the federal government. Graduates would be set up for good jobs in high-demand fields… Schedules were disorganized and courses did not follow a set syllabus. School-provided laptops couldn’t run critical software. And during long stretches of scheduled class time, students were left without instruction… The disarray…is the most painful example of broader problems with the $386 million Veteran Rapid Retraining Assistance Program, or VRRAP. …nearly 90 schools have had their approvals yanked, according to VA officials, including several that were actively serving about 100 veterans. …only about 6,800 veterans had enrolled in the program, far fewer than the 17,250 Congress created it to serve, the agency said; just 397 had landed new jobs.

Some of you may be tempted to conclude that the program was a success since it did result in 397 jobs.

Others will conclude it was a failure since the budget was $386 million, implying each job cost taxpayers nearly $1 million.

I sympathize with the second conclusion, of course, but here are two questions that need to be answered.

  1. How many of those 6,800 veterans would have landed new jobs if they didn’t participate in the program?
  2. How much economic activity would have been generated if the $386 million was left in the private sector?

Suffice to say, the answers to those questions would show more jobs and more prosperity if the program was never created.

Incidentally, the story, authored by Lisa Rein and Yeganeh Torbati, includes this depressing bit of information.

The troubles with VRRAP were achingly predictable: A similar program rolled out in 2012 — the Veterans Retraining Assistance Program, or VRAP — also failed to attract students and was widely regarded as a flop.

In other words, it was already known that this specific type of program would be a flop.

Heck, there are decades of evidence that all types of government job-training programs are a failure.

So why did Congress approve this scheme?

Unfortunately, the story only tells us that this program was part of Biden’s failed $1.9 trillion stimulus boondoggle, but it does not tell us which politicians on Capitol Hill pushed the plan.

I’m sure we would find those politicians got a lot of campaign contributions from that the interest groups that financially benefited the boondoggle.

All part of Washington’s corrupt version of recycling.

P.S. Since today’s column highlighted how a headline can have a powerful message, here are some previous headlines that caught my attention.

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As an economist, I can immediately think of several ways that big government is bad news for poor people.

But that’s only a partial list. Today, let’s peruse a report from a few weeks ago in the New York Times.

Authored by Robin Kaiser-Schatzlein, it shows how poor people are routinely victimized by greedy and grasping government in Alabama.

In states like Alabama, almost every interaction a person has with the criminal justice system comes with a financial cost. If you’re assigned to a pretrial program to reduce your sentence, each class attended incurs a fee. If you’re on probation, you’ll pay a fee to take your mandatory urine test. If you appear in drug court, you will face more fees, sometimes dozens of times a year. Often, you don’t even have to break the law; you’ll pay fees to pull a public record or apply for a permit. For poor people, this system is a trap… I asked almost everyone I met — gas station attendants, Starbucks baristas and grocery store clerks of all races — if they knew anyone who had been affected by court fines and fees. Many told me stories of family and friends who had. Some had themselves.

The story includes several anecdotes about people who get nailed by endless fees and charges.

Here’s just one example.

Niaya Williams…began driving hours each day back and forth from her job at McDonald’s and his day care. …she started getting ticketed quite frequently. She remembers that one day, she got her first set of tickets for, among other things, not stopping long enough at a stop sign. … ticket for not having a license, a ticket about switched tags that she didn’t fully understand and a ticket because the officer said Mercury was buckled incorrectly. She recalled being given at least three tickets every time she was pulled over. …She was…arrested because of just traffic infractions and missed court dates, Mrs. Williams said. She was, in essence, guilty of little else than being too poor to pay off her fines.

Echoing what I wrote back in 2015, the author notes that this is not a problem unique to Alabama.

States found fines and fees to be an expedient source of revenue, operating under the radar as what some scholars call nontax taxes.  …A 2019 Governing magazine study of cities, towns and counties with significant revenue from fees and fines showed that nearly 600 jurisdictions relied on fines and forfeitures for more than 10 percent of their revenue and 80 relied on fines and forfeitures for over half their revenue. …“Fees are not about public safety,” said Lauren-Brooke Eisen of the Brennan Center for Justice. “They’re about raising revenue.”

Unfortunately, there is a big logical flaw in the story.

Ms. Kaiser-Schatzlein wants readers to think that Alabama is pillaging poor people because of low taxes and small government.

Alabama has one of the cruelest tax systems in the country. Taxes on most property, for example, are exceptionally low. …millions of others in the state live in the wreckage of a system starved of funding: The state has chronically underfunded schools, bad public transit, a dearth of well-paying jobs, little affordable child care and a diminishing health care system. …Most places have a simple and effective method for quickly ameliorating these problems: They raise property or income taxes. But Alabama often refuses to do so or makes it exceptionally difficult, dooming many to living standards unthinkable for a country as rich as the United States.

Too bad she didn’t do any research on this part of her story.

She could have looked at the latest edition of the Tax Foundation’s State Business Tax Climate Index and learned that Alabama actually has one of the nation’s greediest tax systems.

And if Ms. Kaiser-Schatzlein had spent a few minutes looking at data from the Census Bureau, she would have learned that Alabama is hardly a beacon of limited government.

I crunched the numbers two years ago and found that spending by state and local governments in Alabama was way above average when measured as a share of state income. And it was about average when measured on a per-capita basis.

I’ll conclude by observing that there are many states that have very low tax burdens and relatively low levels of government spending, way below Alabama. Including other southern states such as Florida and Texas, not just places like South Dakota and New Hampshire.

If such policies are a recipe for hurting the poor, why are so many Americans of all income levels migrating to those places?

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Yesterday’s column was rather depressing, focusing on the expansion of a corrupt internal revenue service.

To make matters worse, that IRS expansion is part of a larger package of new taxes and more spending.

So let’s offset that bad news with some economics humor.

Since the Biden-Manchin-Schumer legislation includes a big back-door tax increase on companies (the provision targeting “book income“), that’s a perfect segue to our first item about taxation and incentives.

The Biden-Manchin-Schumer legislation isn’t just about misguided tax increases.

It also contains lots of new spending.

Which is why this list from the Babylon Bee is very appropriate.

Next, most of the world’s major nations are dealing with rising prices.

Why?

Because central banks around the world dramatically expanded their balance sheets (i.e., created too much money).

So this definition is both timely and accurate.

Speaking of central banks, here’s a little girl pretending to be Chairman of the Federal Reserve.

Except we now have the highest inflation in 40 years, so the fire is doing even more damage.

Per tradition, I saved the best for last. I’ve written many times that being pro-capitalism is not the same as being pro-business.

Well, here’s a helpful algorithm to show the difference between genuine free enterprise and despicable cronyism.

P.S. You can enjoy previous collections of economics humor by clicking here, here, and here.

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Even though they ostensibly exist to promote economic growth, the International Monetary Fund (IMF) and Organization for Economic Cooperation and Development (OECD) have an unfortunate track record of promoting higher taxes and bigger government.

Not that we should be surprised. IMF and OECD officials get very comfortable (and tax-free!) salaries, so they have a “public choice” incentive to reflect the wishes of the politicians who control their purse strings.

But understanding the incentives of international bureaucrats definitely does not mean we should give them a free pass when they push bad policy.

And that’s exactly what the IMF and OECD are doing in Latin America.

Consider, for instance, the new IMF report on “Tax Policy for Inclusive Growth in Latin America and the Caribbean.” The authors (Santiago Acosta-Ormaechea, Samuel Pienknagura, and Carlo Pizzinelli) apparently think those struggling nations will grow faster if there is a bigger burden of government.

…fiscal policy…is not progressive enough… This paper presents a detailed assessment of tax structures in LAC and outlines reform options to improve collection… Specific tax design features are then assessed, inspecting how the taxation of capital and labor can be improved…to both increase revenue and provide a more equitable tax structure… Evidence for LA7 countries shows that better PIT design could bring significant gains in collection and equity. … Potentially adverse growth impacts could be mitigated by providing well-targeted incentives to labor force participation of low-wage earners through an earned income tax credit… Increasing the tax burden on certain non-labor income sources (e.g., capital gains) would also raise PIT revenue and improve equity… Other untapped revenue sources should be considered more forcefully, including the taxation of immovable property, inheritance taxes, and environmental taxes.

As illustrated by Figure 1 from the report, one of the clear messages is that Latin American countries should be more like high-tax countries in Western Europe.

What the authors overlook, however, is that the (relatively) rich countries in Western Europe became rich when the burden of government was very small.

There’s never been a nation, anywhere in the world, or at any point in world history, that became rich by adopting big government.

Now let’s look at what the OECD recommends, as part of “Latin American Economic Outlook 2021: Working Together for a Better Recovery.”

The LEO 2021 provides tailored policy messages to help stakeholders take action and build forward better. …it highlights the need to learn from the pandemic and mainstream some of the social policy innovations adopted throughout the crisis to strengthen social protection systems and improve quality and accessibility of public services. …a set of tax policy options could increase revenues… there needs to be greater resource mobilisation…in most LAC countries, which in turn implies greater progressivity of the taxation system… the average tax-to-GDP ratio in the LAC region was 22.9% in 2019, considerably below the OECD average of 33.8%… Countries may need to consider additional ways of raising revenues… PIT is the principal factor behind the tax gap between LAC and the OECD, limiting not only potential revenues but also the redistributive power of the tax system… taxation of immovable property…and of individuals’ capital gains, should contribute to increasing revenues to finance the recovery and improve the progressivity of the taxation system. Other measures include wealth and inheritance taxes.

Table 1 from the report summarizes the “new social contract” that the OECD is advocating.

All you need to understand is that “strengthening social protection systems and public services” is bureaucrat-speak for more government spending and “developing fairer and stronger tax systems” is bureaucrat-speak for higher taxes and class warfare.

I’ll close by calling your attention to this video explaining the ideal fiscal policy for nations in the developing world.

But remember that fiscal policy is just one piece of the puzzle, so I also recommend this video and this video if you want a full understanding of the policies that are needed to create broadly shared prosperity.

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I’m a policy wonk rather than a political pundit.

But since part of my job is educating politicians, I can’t simply rely on arguments about what’s best for the country.

I also have to convince them that they can enact good policy while also keeping their jobs.

And that’s why I developed my Fourth Theorem of Government back in 2017.

The simple message is that ordinary people enjoy more income if and when politicians make wise policy choices.

And that’s a very effective strategy for winning reelection.

The obvious example is Ronald Reagan, who won a landslide in 1984 even though (or, actually, because) he aggressively fought to reduce the burden of federal spending.

But not everybody agrees with me.

In a column for the Washington Post, Henry Olsen argues that the Republican Party needs to ignore libertarian ideas and embrace activist government.

Many conservatives recognize that attracting a new, diverse, working-class voter base also entails a new, non-libertarian approach to economics. …Liberty-minded intellectuals might rail against widespread government involvement in the economy, but voters like free public education, subsidized health care and generous pensions. …voters…prefer the Scylla of tax increases to the Charybdis of entitlement cuts as aging populations put fiscal pressure on health-care and retirement programs. …The Chips package should serve as a symbol of what government will need to do to reinvigorate an economy that builds things.

I’ll make my main points about taxes and entitlements at the end of the column, but I can’t resist some editorializing on two things from the above excerpt.

First, Henry says voters like free public education. Maybe that’s true, but they seem to like the ultra-libertarian idea of school choice even better.

Second, he argues that the recently enacted Chips law is a role model. But if industrial policy was a good idea, why did Japan stagnate? Why has China’s growth slowed?

Let’s now look at more of the column.

Past Republican efforts to limit the growth of entitlement spending after GOP landslides in 1994 and 2010 backfired politically, helping to reelect presidents Bill Clinton and Barack Obama. The fact is that 63 percent of Trump voters care more about keeping Social Security benefits than preventing tax hikes, and 45 percent care more about giving seniors on Medicare what they need than about controlling program costs. …Any serious effort to retain these largely working-class voters — and attract more in the future — must come to grips with these views. …Modern conservatism needs to refine Reagan’s insights and explicitly adopt a theory of when government should act to enhance people’s lives.

My first instinct is to ask for examples of how and when government enhances people’s lives. Or to provide examples of where Reagan thought government did a good job.

That certainly does not seems to fit with Reagan’s message in this video, this video, or the second video from this collection.

Or this video!

But maybe Reagan’s own words were insincere. That seems to be what Olsen thinks since he wrote that “the conservative idol implicitly sanctioned government action if it helped people live dignified lives of their own choosing.”

So let’s forget about words and look at the track record.

What we find is that Reagan was remarkably effective in fighting big government. Indeed, what separates Reagan from every other Republican in recent history is that he successfully fought to constrain the burden of government spending.

But don’t believe me. The data from the Historical Tables of the Budget unambiguously show that Reagan was far better than any other president in the past 50-plus years.

I’ll close by questioning Olsen’s claim that voters prefer tax increases over spending restraint.

I very much suspect that is only the case if they think someone else’s taxes are being increased.

If you don’t believe me, I invite you to look at this polling data from left-wing supporters of Bernie Sanders. And if hard-left voters are not willing to pay more to finance European-sized government, what are the odds that Republican voters are willing to pay more?

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Supporting free enterprise does not mean supporting big companies.

Why? Because as John Stossel and Tim Carney discuss, big businesses are more than willing to get into bed with big government and oppose capitalism.

The goal should be genuine consumer-driven, market-based competition. And that means that politicians should not put their thumbs on the scale in favor of specific companies or industries.

Unfortunately, that certainly has happened in countless cases.

At varying times, both Republicans and Democrats have provided special favors to Wall Street, General Motors, airlines, health insurance companies, Boeing, Big Pharma, and banks.

These odious examples help to explain why companies give money and support to politicians from both parties.

But sometimes that approach backfires. Let’s consider how the Chamber of Commerce can be blamed for the looming enactment of Biden’s horribly misnamed Inflation Reduction Act.

The Wall Street Journal opined on this issue today.

The U.S. Chamber of Commerce…bet in 2020 that supporting “centrist” House Democrats would protect against anti-business policies has been a bust. …How does that calculation look now…? Every one of the 15 voted for the $1.9 trillion spending bill in March 2020, despite Chamber opposition to sweeping jobless benefits that stoked labor shortages and stimulus checks that fed inflation. They also voted for the PRO Act, a radical pro-union rewrite of labor law. …Now comes the big moment of truth as the Schumer-Manchin tax and spend bill heads to the House… The chance of Democratic defections is slim. Despite aggressive Chamber lobbying, all 15 rolled over for the $3.5 trillion Build Back Better bill last year.

Amazingly, the Chamber bent over backwards to endorse these politicians, notwithstanding their consistent track record of support for bigger government.

Nearly all had publicly expressed support for scrapping the 2017 corporate tax reform, and for new climate, banking and healthcare regulations. The only reason most qualified for endorsements is because the Chamber altered its voting scorecard to allow extra points for “leadership” and “bipartisanship.” …It’s not too much to say that the Chamber was crucial in midwifing Speaker Nancy Pelosi’s 222-211 seat majority.

The Washington Post wrote last year about the Chamber’s controversial decision to side with Democrats.

Here are some excerpts from the story by Tory Newmyer and Aaron Gregg.

 …the Chamber has been the object of sharp attacks by leading conservatives. …The decision to endorse so many freshman Democrats, rather than give them time for their voting records to take shape, was a dramatic break from past procedure. …the conservative backlash has led to alarm even among some of the organization’s closest allies. A veteran U.S. Chamber board member, speaking on the condition of anonymity to avoid reprisal, said: “It is a legitimate question how well-thought out this strategy is. People are concerned, and they’re discussing where else they can send revenues to support free enterprise.” …Seeing Chamber-endorsed Democrats support pro-union legislation “is like the national right to life organization saying they now support some abortions,” said a former U.S. Chamber executive, who spoke on the condition of anonymity because the person feared reprisal.
If you want examples of conservative hostility, here’s a tweet from Hugh Hewitt.

And here’s a tweet from Oren Cass.

Interestingly, this is not the first time the Chamber of Commerce has sided with the left.

In a column for National Review earlier this year, Nate Hochman recounts what happened during the Hillarycare fight back in 1993.

In March 1993, the Chamber of Commerce surprised many of its allies by coming out in favor of Clinton’s plan for universal coverage with an employer mandate, reversing its earlier opposition to both proposals. …The Chamber’s attempt to curry favor with the new administration provoked a furious conservative backlash. Congressional Republicans — led by John Boehner of Ohio, then the head of the 75-member House Conservative Opportunity Society — organized a mass boycott of the Chamber, urging local and state chapters to disaffiliate in protest. The campaign was devastatingly effective: By the time the dust had settled, the Chamber had lost one-fifth of its membership.

As far as I’m concerned, any business owners who favor free enterprise should not support the Chamber of Commerce. It would be heartwarming to see the organization lose members.

But this brings me back to what I wrote at the start of today’s column. Many business owners don’t support capitalism. They prefer cronyism.

That’s particularly true for large companies, which often see big government as a way of thwarting competition from small companies (such as Amazon’s support for a higher minimum wage).

P.S. The Chamber of Commerce is not the only business association governed by fools. Yes, I’m referring to the Business Roundtable.

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A big argument for free enterprise over statism is that the former delivers growth while the latter leads to stagnation.

And that’s very apparent when you review decades of data.

The case for capitalism is especially powerful if you care about what’s best for the disadvantaged. As the chart from Economic Freedom of the World illustrates, poor people enjoy much higher levels of income in nations that have higher levels of economic liberty.

So why, then, do our friends on the left support bigger government?

There are several possible answers, but today let’s focus on their understandable desire to do things that seem compassionate. Particularly things that seem to offer immediate help.

I think that’s a big reason why some well-meaning leftists support a big welfare state even though there is plenty of evidence that poor people get trapped in dependency. They are so focused on doing something that ostensibly alleviates today’s problems that they do not appreciate the risk of harmful long-run consequences.

This problem is so pervasive that we need to create a new Theorem of Government.

If you want an example of this Theorem, we can look at a story in today’s New York Times.

Reporters Jeanna Smialek and  document how low-income people are being hurt by inflation and will probably be hurt by what will be needed to curtail inflation.

…data and anecdotes suggest that lower-income households, despite the resilient job market, are struggling more profoundly with inflation. That divergence poses a challenge for the Federal Reserve, which is hoping that higher interest rates will slow consumer spending and ease pressure on prices across the economy. Already, there are signsthat poorer families are cutting back. …The Fed might need to raise interest rates even more to bring inflation under control, and that could cause a sharper slowdown. In that case, poorer families will almost certainly bear the brunt again, because low-wage workers are often the first to lose hours and jobs. …America’s poor have spent part of the savings they amassed during coronavirus lockdowns, and their wages are increasingly struggling to keep up with — or falling behind — price increases.

The story is filled with anecdotes about poor people suffering from inflation.

And, as the above excerpts captures, it has plenty of fretting about how the less fortunate will suffer as the Federal Reserve tries to fix the mess.

But what you won’t find in the story is any acknowledgement that poor people would not be dealing with this hardship if the Federal Reserve had not made the mistake of creating too much liquidity in the first place.

Yet this is the big lesson all of us should learn.

The Federal Reserve wanted to offer short-run help to the economy, motivated in part by a desire to help poor people by propping up the economy during the pandemic.

Yet any short-run help has been swamped by subsequent negative consequences.

And this is not unique. The big lesson from the so-called War on Poverty is that poverty rates suddenly stopped declining. In other words, government tried to help, but wound up doing harm.

P.S. Here are the other 13 Theorems of Government.

  • The “First Theorem” explains how Washington really operates.
  • The “Second Theorem” explains why it is so important to block the creation of new programs.
  • The “Third Theorem” explains why centralized programs inevitably waste money.
  • The “Fourth Theorem” explains that good policy can be good politics.
  • The “Fifth Theorem” explains how good ideas on paper become bad ideas in reality.
  • The “Sixth Theorem” explains an under-appreciated benefit of a flat tax.
  • The “Seventh Theorem” explains how bigger governments are less competent.
  • The “Eighth Theorem” explains the motives of those who focus on inequality.
  • The “Ninth Theorem” explains how politics often trumps principles.
  • The “Tenth Theorem” explains how politicians manufacture/exploit crises.
  • The “Eleventh Theorem” explains why big business is often anti-free market.
  • The “Twelfth Theorem” explains you can’t have European-sized government without pillaging the middle class.
  • The “Thirteenth Theorem” explains that people are unwilling to pay for bloated government.

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Yesterday’s column explained that lobbyists are big winners when the size and scope of government increases.

  • For instance, a bigger budget means special interests hire lobbyists to obtain ever-larger slices of pork.
  • Moreover, added red tape means lobbyists get more clients seeking to manipulate the regulatory process.

And Biden’s grossly misnamed Inflation Reduction Act will make both of those problems worse, enabling more corruption.

But there’s a third problem to consider. Biden’s agenda also calls for a massive expansion of special tax privileges.

From a libertarian perspective, I like when the law allows people to keep more of their money.

As an economist, however, I don’t like when people are lured into make inefficient choices simply because of a convoluted tax system.

And, as a decent human being, I despise a process that enriches lobbyists, politicians, and other insiders. This corrupt process is succinctly captured in this flowchart put together by my former colleague Chris Edwards.

Chris’ main point is that we should be reforming and simplifying the tax code rather than dramatically expanding the budget of a corrupt Internal Revenue Service.

You can’t argue with that goal (assuming you want what’s best for the nation). Even folks on the left should agree.

The bottom line is that a complicated and convoluted tax code is great for lobbyists and a boon for corruption.

P.S. If you want to know the world’s most surprising loophole, click here.

P.P.S. Assuming loopholes are properly defined, the ideal policy is to eliminate them in tandem with enactment of lower tax rates.

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